'Monopoly Power'

The government argued that Microsoft has monopolized the market for personal computer operating systems with its Windows software, which is installed on 90 percent of new PCs. Microsoft's monopoly power, according to the government, largely stems from the steep barrier competitors face in creating software--word processors, spreadsheets, games and the like--to work with a new operating system. Microsoft maintained that its market share could quickly shrink if better technology were developed by somebody else. The company asserted that new operating systems, particularly one called Linux, have a strong chance of eroding Microsoft's market dominance.

"Viewed together, three main facts indicate that Microsoft enjoys monopoly power. First, Microsoft's share of the market for Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows. . . . Microsoft's monopoly power is also evidenced by the fact that, over the course of several years, Microsoft took actions that could only have been advantageous if they operated to reinforce monopoly power."

An Effort To Collude

The government alleged that Microsoft illegally proposed to divide the market for Internet browsers with rival Netscape Communications Corp. The government said that Microsoft, in a June 1995 meeting, urged Netscape not to make Internet browsers that would run on Windows because Microsoft wanted to control that market. Microsoft threatened to withhold crucial technical information if Netscape refused, which it eventually did, the government contended. Microsoft argued the meeting was a routine business encounter where nothing untoward occurred.

"As soon as Netscape released Navigator on December 15, 1994, the product began to enjoy dramatic acceptance by the public; shortly after its release, consumers were already using Navigator far more than any other browser product. This alarmed Microsoft, which feared that Navigator's enthusiastic reception could embolden Netscape to develop Navigator into an alternative platform for applications development. . . . Navigator was the only browser product with a significant share of the market and thus the only one with the potential to weaken the applications barrier to entry. Thus, had it convinced Netscape to accept its offer of a 'special relationship,' Microsoft quickly would have gained such control . . . as to make it all but impossible for any future browser rival to lure appreciable developer interest away from Microsoft's platform."

Restraint Of Trade

The government alleged Microsoft foreclosed Netscape's key product-distribution channels by entering into agreements with PC manufacturers and Internet service providers that severely limited the way they could offer the Netscape browser. Microsoft maintained that Netscape had many other ways to distribute its product, noting that millions of consumers have downloaded the browser from the Internet.

"The actions that Microsoft took against Navigator hobbled a form of innovation that had shown the potential to depress the applications barrier to entry sufficiently to enable other firms to compete effectively against Microsoft in the market for Intel-compatible PC operating systems. That competition would have conduced to consumer choice and nurtured innovation. The campaign against Navigator also retarded widespread acceptance of Sun's Java implementation. . . . There is insufficient evidence to find that, absent Microsoft's actions, Navigator and Java already would have ignited genuine competition in the market for Intel-compatible PC operating systems. It is clear, however, that Microsoft has retarded, and perhaps altogether extinguished, the process by which these two middleware technologies could have facilitated the introduction of competition into an important market."

'Bundled' Products

The government argued that Microsoft illegally tied together two separate products--its Windows operating system and its Internet Explorer browser. The combination, the government asserted, provided no benefit to consumers and was designed simply to distribute the Microsoft browser. Microsoft maintained that the inclusion of the browser in Windows has helped consumers by making it easier to use the Internet.

"While Microsoft might have bundled Internet Explorer with Windows at no additional charge even absent its determination to preserve the applications barrier to entry, that determination was the main force driving its decision to price the product at zero. Microsoft's refusal to respect the user's choice of default browser fulfilled Brad Chase's 1995 promise to make the use of any browser other than Internet Explorer on Windows 'a jolting experience.' By increasing the likelihood that using Navigator on Windows 98 would have unpleasant consequences for users, Microsoft further diminished the inclination of [original equipment manufacturers] to pre-install Navigator onto Windows. The decision to override the user's selection of non-Microsoft software as the default browser also directly disinclined Windows 98 consumers to use Navigator as their default browser, and it harmed those Windows 98 consumers who nevertheless used Navigator.

Harm To Consumers

The government contended that Microsoft's actions have restricted choices for consumers, hindered innovation and raised prices. Microsoft argued that nothing it has done has hurt consumers.

"To the detriment of consumers, however, Microsoft has done much more than develop innovative browsing software of commendable quality and offer it bundled with Windows at no additional charge. As has been shown, Microsoft also engaged in a concerted series of actions designed to protect the applications barrier to entry, and hence its monopoly power, from a variety of middleware threats, including Netscape's Web browser and Sun's implementation of Java. Many of these actions have harmed consumers in ways that are immediate and easily discernible. They have also caused less direct, but nevertheless serious and far-reaching, consumer harm by distorting competition."